Monday, August 14, 2017
Why you should have a dedicated Budget
This post will kick off another week here at Budget Boss and it might be the most important of all. I speak about it all the time and it is the name of the website after all. Having a budget is crucial to any financial plan. This is the case for even the richest people but especially those struggling with their monthly finances. In my opening video when you enter budgetboss.ca I explain how having a budget changed my perception on my money. It helped me stay organized and coherent of my spending. In any stage of life, a budget is very important. This goes for students, single people, families, affluent people, small businesses, and retirees. During the course of this week, I will go over many budget-related topics that will show you the importance and significance of having a dedicated budget. Simply put, a budget is just a summary of money coming in and money going out. Where it gets confusing is when one does not know those two items. Having a budget eliminates that problem. Why this is so important is that it allows for deeper planning to take place. In this post, I will describe why having a budget is so very important and give you a valuable resource to start your budget journey.
1) Money is a Finite, Valuable Resource
This one seems simple but it can be more complicated than you think. Knowing the exact implications of how much money you make and where it is going is crucial. If you find it tough to pay bills or save, or you are accumulating debt then there is an issue. The issue is you only have so much money every month. Once it is gone, it’s gone. You have to make sure it is going to the right places or else it will be going to the wrong places. Sounds simple enough right? Wrong, because the wrong places end up costing you more money. Waste is a huge problem for anyone’s monthly budget. Not knowing where your money is going can cost you huge.
Your Own 1-Page Financial Plan – Budget Boss
2) Debt can be Infinite and very damaging
A huge portion of people’s monthly budgets goes towards debt repayment. The easiest way to get out of debt is to not get into it in the first place. The only way to not get into debt is by having a positive cash flow. This means that every month you must have more money coming in than going out. Not doing this will cause a deficit that over time can add up. For most people debt occurs with many small transactions. Those weekend trips, dinners out and impulse shopping sprees add up. The compounding effect of debt can linger over time until your cash flow has been damaged substantially. Having money is about having value and there is nothing less valuable than paying interest on money borrowed. Any extra dollar spent on debt interest is money you can be spending on yourself or better yet, saving.
“Typical” Household Budget Allocation
3) Goals require planning and the plan is the budget
We all have goals in life. Buy a new car, save for a home, pay off debts, and going on vacations are a few of those. In order to achieve these goals, it is important to plan. The plan will be to save extra money so how do you know where that money will come from unless you know how much money you make and spend. Almost anything can be worked into your budget, and not doing so will force you to use credit. Knocking out goals one by one can be fun and exciting but can only be done when you have complete clarity of your finances. Even small amounts add up over time so using a budget to accomplish goals is vital. Something as daunting as retirement can be realized with simple budget planning so don’t discount its importance.
6 Reasons Why You NEED a Budget – Investopedia
4) Shows you where you go wrong
Many people I meet have no idea where their money goes. They pay all their bills every month and find enough to get by but have trouble putting away extra money for a rainy day. All this comes to light when I look at their VISA and bank statements. We often don’t realize how the little things we are doing every month really add up. Most people have no clue how often they eat at a restaurant or order take out. Once they actually take a look at it, they see it is more than they thought. If you ask someone if they think eating out every day is bad or not they would say it is bad. Despite this many people seem to waste a lot of money on things that don’t matter. Using a budget shows you what you are doing wrong and allows you to concentrate on remedying it. For some people, it is the kick in the butt that they need to smarten up with their money.
Budgets can be as simple or as complex as you wish to make them. I have some friends that count literally every penny. Some people actually need that sort of structure as they have out of control spending habits. Mine applies the “Pay Yourself First” principle and then allows me to spend the rest. That means I cover all my bases first then blow the rest of my money. I live frugally enough where this isn’t too much of an issue but I do find some wasteful spending in my monthly routine. It is because I have the dedicated budget that I can see these leaks and then remedy them. This kind of clarity is necessary to pay off debts, spend below your income, save for the future and invest properly. All of the money guru’s agree. Gail Vaz-Oxlade, Dave Ramsey, Suze Orman, Patti Lovitt-Reid and many others all believe a budget is essential to having a working financial plan. Implementing a budget may change the way you look at money forever, in the best way possible.
“You’ve got to tell your money what to do or it will leave.” – Dave Ramsey
Email – joe@budgetboss.ca
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